A focused look at today’s growing chains in the US points to the trends that savvy restaurant operators will make the most of in future years, according to Darren Tristano, executive vice president of Technomic Inc.
Technomic has identified hundreds of concepts over the years, focusing on where we think there will be growth and then tracking these chains to see which will succeed or fail. There is not a set definition for a growth concept - sometimes it’s a case of ‘we’ll know it when we see it’. There are, however, elements that most of these chains have in common.
We tend to track concepts with three or more locations and a couple of years of growth. Unit economics have also proven important, as it is key to continue to grow and profit at the unit level in order for a chain to succeed.
In terms of the actual brand, most of the ‘hot concepts’ have broad consumer appeal, a well-defined menu and a differentiated approach, offering something unique to drive the customer experience.
A snapshot of today’s growth
Unit growth in 2011 was a mixed bag in the United States in terms of success and failure. While we haven’t seen a lot of growth in the industry as a whole, more than 500 of the 1,500 chains we are tracking expanded.
Nearly a third of the chains saw no growth, though, and a third of the chains’ unit counts declined. As one brand’s restaurants close down, others simply take their space.
Looking at the fastest growers, those whose total units increased by 20% or more, finds that 77 are fast-casual concepts, despite that segment being the smallest in the industry.
There were 53 casual-dining chains with store-count increases of 20% or better, and 52 quick-service chains. As expected, there was not much growth in the family-style segment, with only eight concepts experiencing at least 20% growth.
As it’s expanding the quickest, the fast-casual segment is worth looking into more deeply. The segment is very broad in terms of menu, as everything from burgers to salads saw growth. Out of the 77 growth concepts, Better Burger performed the best, with 21 restaurant chains reporting 20%-plus growth. In this category, we’ve seen a lot of movement from regional concepts expanding. Healthy concepts, namely salad and Mediterranean chains, are emerging, as they offer a more nutritional experience; there were 13 healthy concepts with 20% increases or better. The sandwich, bakery-café and Mexican menu segments each had several fast-growers as well.
Limited-service concepts in growth
What follows is a handful of up-and-coming restaurant chains that we see as examples of overall trends driving business.
Zoës Kitchen excels at healthfulness. The Birmingham, Alabama-based fast-casual concept offers healthy Mediterranean-inspired comfort food that appeals to consumers who want something that tastes good, is made fresh daily and is better for them. The chain’s 57 restaurants feature a bright, colourful environment to create a sense of friendliness. Zoës also specialises in home meal replacements, offering consumers the chance to take home better-for-you meals for a family.
Orange Leaf Frozen Yogurt excels at value. The frozen-yogurt market has evolved over the years. Chains such as Pinkberry and Red Mango rolled out in 2005, offering a more upscale approach to the frozen dessert. Following the recession, self-service concepts such as Orange Leaf Frozen Yogurt and others grew as franchisees jumped in to expand these cheaper-to-operate chains. In terms of value, its self-service model allows guests to create their own portion size and pay accordingly, and is very kid-friendly. The dessert is also known for its ‘health halo’ attributes, as most diners view frozen yogurt as healthy. Oklahoma City-based Orange Leaf had 114 units at year-end.
Jake’s Wayback Burger excels as a modern classic. The Cheshire, Connecticut-based 44-unit chain is an older concept that rebranded itself in 2010 around the idea of a juicy burger and a ‘real’ milk shake in a ’20s-inspired setting. With the popularity of better-burger concepts, Jake’s positioned itself for quick growth via franchising. As larger fast-casual better-burger chains, such as Five Guys, sold out of their US franchise opportunities, Jake’s jumped in, presenting potential franchisees a way to profit on both the single and multi-unit level.
Freebirds World Burrito excels at energy and personality. This is a concept with attitude. Its colourful design and rebellious positioning appeal to diners looking for something unique.
The fast-casual chain, which had 62 units and is based in Austin, Texas, offers its tin-foil-wrapped burritos in a number of different sizes, up to the Super Monster for extremely hungry guests. It then uses the tin foil theme in its restaurant décor, in order to create a fun environment.
Newk’s Express Café excels at grab-and-go.
The fast-casual sandwich concept appeals to time-pressed consumers with its grab-and-go fare. Meals are made to order, scoring high with consumers on how they relate to the brand. To further the quick yet quality positioning, restaurants are well designed to appeal to the on-the-go crowd. Newk’s has 45 sites and is based in Jackson, Mississippi.
Freshii excels at customisation. It has taken off across the nation, opening 26 units from coast to coast. The very customisable chain takes a healthy positioning, promoting its wraps, salads and rice bowls as better-for-you options made with fresh, healthy ingredients. One drawback for some consumers of these quality meals is the higher price point. This, however, is a pro for the chain, and Chicago-based Freshii targets more affluent clientele accordingly.
Full-service concepts in growth
Business is a bit more difficult for full-service concepts today. One main reason is tipping. Gratuity is a cost that consumers have to factor in when dining out at full-service restaurants that is not applicable in limited-service restaurants.
Full-service restaurants can also be an inconvenience for some diners at lunchtime, especially those looking for a quick meal. On the whole, the full-service sector is not growing as much as the limited-service segment, partially because these restaurants are bigger investments and there is not as much franchise interest. There are plenty of concepts, however, that are succeeding.
Cooper’s Hawk excels at hand-crafted wine. The varied-menu chain is known for making its own wine. While its nine restaurants offer several different elements in one (winery, restaurant, bar and tasting room), it isn’t your typical wine bar.
Restaurants are masculine enough to appeal to men, but still offer the comfort level and sophistication that many female consumers are drawn to. The Orland Park, Illinois-based chain has also done well with its wine club, offering a monthly bottle of a special blend only available to its club members.
Genghis Grill excels at customisation and value. The Asian create-your-own-stir-fry chain appeals to diners for a number of reasons. The do-it-yourself format provides a number of options for guests. The 70+ ingredient bar has a variety of healthy options for diet-conscious consumers, and it is also an outlet for kids to be creative in building their own meals.
Food quantity is also customisable; customers can eat as much as they want. The 82-unit Dallas-based chain is growing rapidly, which can be attributed to its small platform and low costs.
Mellow Mushroom excels at uniqueness. Each Mellow Mushroom restaurant is different; there is no typical prototype of the casual-dining pizza chain, which is based in Atlanta. Each of the 135 units has regional elements built into the décor to provide a sense of local comfort. The chain as a whole, though, is known for its hippie theme. The psychedelic ambiance allows guests to leave their world and immerse themselves in a far-out experience.
Chuy’s excels at quirkiness. The casual-dining Mexican chain is known for kitsch. Restaurants feature design elements such as a hubcap-covered ceiling, Elvis-themed rooms and a toppings bar in the back of a vintage car. The chain pairs its differentiated experience with quality food. The nostalgic feel and good fare especially appeal to the ‘baby boomer’ generation.
Brio Tuscan Grille excels at sophistication. The environment is both sophisticated and comfortable at this Columbus, Ohio-based casual-dining Italian chain’s 46 restaurants. One might consider it a more upscale version of the Olive Garden, providing a higher level experience that also costs slightly more. Due to the higher price point, the diverse and affluent guests can expect to see a larger wine selection and more polished menu.
Marlin & Ray’s excels at atmosphere. This concept is a prime example of re-concepting. After many Ruby Tuesday units failed, the company was left with some prime real estate.
Instead of continuing to sell the buildings to other casual-dining chains, Ruby Tuesday rolled out Marlin & Ray’s, a seafood concept that is more upscale than its previous brand. The Maryville, Tennessee-based company is attempting to move to the polished-casual level by continuing to offer a laid-back environment but rebranding to a more sophisticated, vibrant concept.
Conclusions
Operators will continue to adjust their concepts to adapt to competitive markets. As concepts broaden their menus and go after different service formats, it grows increasingly difficult to identify the competitors. This is especially true among fast-casual brands. This small segment continues to evolve and grow, leading the pack for development in the foodservice industry.
With the millennial generation increasing its spending power, operators are developing and adjusting concepts to fit this demographic.
Contemporary concepts will continue to flourish, as the younger generation seeks out the next best thing.
Finally, food quality and value will drive consumer appeal. Food quality is what creates ‘craveability’, but value always remains top of mind.
Operators need to be able to provide balance in order to draw in consumers and remain profitable.
Darren Tristano is executive vice president of Technomic Inc, a Chicago-based foodservice consultancy and research firm. Since 1993, he has led the development of Technomic’s Information Services division and directed multiple aspects of the firm’s operations. For more information, visit www.technomic.com.
